Tuesday, July 17, 2007

In a front page article on July 16, 2007, TheWall Street Journal reports that, based upon results through June 30, China will overtake Germany in 2007 to become the third largest economy in the world, after the U.S. and Japan.

China had already passed the U.K. and France, but in 2006 its GDP came in at $2.8 trillion, just behind Germany at $2.9 trillion.

In the first two quarters of 2007, however, China grew at 11% and Germany at 3%, and those numbers are expected to hold for the year. The result is that in 2007 China's GDP will grow to $3.1 trillion and Germany will come in at $2.987 trillion.

To put these numbers in context, consider that the 2006 GDP of the U.S. was $13.2 trillion and that of Japan was $4.4 trillion. It gives you a sense of just how big the U.S. economy really is and why until recently every uptick of the U.S. inflation rate caused investors around the world to tremble.

Now as the emerging markets of Asia, Latin America and Eastern Europe surge forward, and as the EU economies grow, the weight of the U.S. economy is becoming balanced by other world economies, with the hopeful result that these economies will prosper and remain stable despite downturns in the U.S.

Two other interesting GDP numbers are those of Russia, which we often think of as in some sense a co-equal power to the U.S., which has a GDP of a mere $975 billion, less than a 13th of that of the U.S., and of little South Korea, with a population of only 49 million, which has a GDP of $877 billion, making it the world's tenth largest economy.

As the emerging markets guru Antoine van Agtmael observes in his new book The Emerging Markets Century, prior to the industrial revolution China and India were in fact the world's largest economies. China's leap over Germany thus resonates with the past.